A Fraction of Time

Hawaii is ripe for the high-end fractional market

April, 2004

Last December, the national player Hawaii loves to claim, Steve Case, purchased a 50-percent stake in Denver, Col.-based Exclusive Resorts, becoming its principal investor. Exclusive Resorts is a club that provides members with access to a variety of luxury homes, with an average value of $2.5 million, including concierge service and other deluxe amenities.

Obviously, this is not for the weak of pocketbook. Members pay a one-time deposit of $350,000. Each year, members select from four plans, ranging in price from $15,000 to $19,000, and ranging in length of stay from 30 to 60 days.

Exclusive Resorts President Brent Handler says he and his brother Brad, who was formerly eBay’s first in-house legal counsel, got the idea for Exclusive Resorts while on a vacation in 2002 with their families in Hawaii. In fact, Hawaii was the first place where the new business invested. Today, Exclusive Resort’s portfolio consists of more than 55 ultra-luxury residences around the world, including homes in Kohala on the Big Island and Wailea on Maui.

“We think that the market is much bigger than Exclusive Resorts and that this form of membership to access luxury real estate will be a growing trend. However, there is currently nobody who is operating in this space like we are,” says Handler.

He emphasizes that because Exclusive Resorts owns the properties and doesn’t sell a deeded interest to its members, it is a vacation membership club, and is not part of the fractional niche of the time-share industry that has been getting a bit more buzz, lately. This may be splitting hairs. According to Coldwell Banker’s Success in Time, “Private Residence Clubs [fractional ownership of high-end vacation homes and condominiums] are the hottest new category of vacation home ownership, and may very well redefine the real estate market for second homes.

Local timeshare expert Mitch Imanaka has defined a fractional as a kind of timeshare product, usually comprised of larger blocks of time, more luxury services and sold to higher-end clientele than the typical, medium-range timeshare.

Hospitality Advisors LLC President Joe Toy did a study of Hawaii as a potential market for fractional products about four years ago, but the product was so new then, that the risk profile was too high. However, Toy says there are currently a couple of sites under consideration for fractional development. Says Toy, “I know that there are several parties that are actually looking at fractionals here and people have been exploring the fractional market for the last five or six years, so I’m sure it’s just a matter of time before a high-end fractional develops here in Hawaii.”

However, both in Hawaii and worldwide, there is a very thin market for fractional product. According to research firm Ragatz Associates, fractional sales were $357 million in 2002, compared to the more than $9.4 billion for the entire timeshare industry.

The executive vice president of Hyatt Vacation Ownership Inc., John Burlingame, concurs that the fractional is a growing segment of the vacation ownership business and that Hawaii has appeal for developers and consumers of the product. Hyatt does not yet have a vacation ownership presence in Hawaii, however, according to Burlingame, “We are looking at Hawaii. I would very much like to have an opportunity in Hawaii and I think, with any luck, we’ll find something that will work for our company.” Burlingame also happens to be the national chair for the American Resort Development Association (ARDA), which represents the vacation ownership and resort development industries.

Exclusive Resorts sees the opportunity here. Handler says the company could have up to nine properties in the Islands by the end of the year. He says, “Hawaii has not been as aggressive in fractional as some other resort destinations have been. My guess is, that has probably been due to land costs, but I imagine there will be a lot of growth in the fractional area in Hawaii on a going forward basis.”